New laws have come into effect which provide better protection for borrowers. About time too!
Read it and weep, lenders!
The Consumer Credit Act is designed to protect consumers with loan or hire agreements. First we had the Consumer Credit Act of 1974. Now, after five years of drafting, we have the Consumer Credit Act 2006. It came into effect from 6 April 2007.
I've gone through the Department of Trade and Industry's explanatory notes to try to pick out the major amendments. I think there are three big changes.
1. More loans and hire agreements are covered by the Financial Ombudsman
You might think that it has enough on its plate with all the bank charge claims it's getting, but the Financial Ombudsman Service (FOS) now covers all licensed lenders. That still isn't 100% of all lending activity, but it does mean a huge increase from the 70% it used to cover.
The change means the ombudsman service will now be able to consider a wider range of complaints, from car loans to pawn broking and from store cards to hire purchase.
The FOS can use its existing powers to investigate lenders to see if they have acted irresponsibly in giving credit or advice. It can then order a lender to repay interest and charges. It can even order a lender to pay compensation or to write-off debt.
2. An unfair relationships test
I'm not married, so I'm not obliged to make a joke about the title of this section. Make up your own. This Act now includes a test that will make it easier for consumers who have been treated unfairly to challenge unfair credit agreements in court. If the relationship is unfair because of the contract terms or how the creditor (lender) operates, for example, then it could be challenged.
Any agreement that provides credit, with just a few specific exemptions, is covered by this test.
3. Borrowing more than £25,000
Previously, loans or hire payments that exceeded £25,000 weren't covered by the Act. Now, in most cases, they are covered. An example of an exception is if you get credit over £25,000 that is mostly (or wholly) for business purposes.
Of course, we'd expect you to think carefully before borrowing anything like this amount!
Two other small changes
- Individuals, sole traders and partnerships were previously all covered by the Consumer Credit Act. Now, partnerships of three people or more will not be covered.
- After a number of defaults your creditor must write to you about your arrears. Also, for fixed-sum loans (e.g. personal loans as opposed to credit cards), the lender must provide annual statements. If they don't do either of these things then they are not entitled to enforce the agreement during the period of non-compliance. What's more, you don't have to pay interest during that time either!
Please remember that my summary is based on guidelines from the DTI, not the actual Act itself. As usual, before taking any action on this, you should do your own research.
> If you've had your coffee and you're feeling sharp, why not take a look at the DTI's explanatory notes yourself.
> See also the Consumer Credit Act 2006 and one interpretation of the Consumer Credit Act 1974.
> Do you want even more protection for your loans? Read about Income Protection Insurance and Payment Protection Insurance.